The Modi Government is Reneging on Its Promise to Allow Exchange of Old Notes

The latest rules create a window for NRIs and Indians who travel abroad to change their last 500 and 1000 notes, but what about everyone else?

The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui

The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. Credit: Reuters/Danish Siddiqui

The media has reported the plight of a young woman who approached the New Delhi office of the Reserve Bank of India (RBI) this week to change some demonetised currency notes that she had.

Apparently the security personnel did not even allow her to enter the RBI office premises. A police officer is said to have commented on the torn state of the currency notes that this daily-wage earner carried with her, which was why she was not allowed to enter the building. Exasperated, the woman is said to have stripped down in protest in front of her son while a bystander recorded the entire event on his mobile and circulated it in cyberspace. According to media reports, this was not her first attempt to exchange her old notes at RBI’s Delhi office. If this version is a true record of what happened, it is extremely disturbing that the security personnel tried to usurp the role of the RBI officials who are the only competent authorities to allow or refuse demonetisation related transactions. but even if the woman had been permitted entry into the RBI’s premises, it is not unlikely that she would have been turned away again.

The reason is because the government is reneging on its own commitments.

Most readers in India may remember the passionate justification that Prime Minister Narendra Modi gave on November 8, 2016, when he announced the government’s decision to demonetise currency notes of Rs 500 and Rs 1000 denomination. The entire country was thrown into turmoil because more than 85% of the currency notes in circulation had suddenly stopped being legal tender, except in a small set of transactions permitted by the  government. Ever since, people have queued up before banks to deposit the demonetised notes and collect its replacement in the small instalments that the government had permitted.

People stand in line outside ICICI bank. Credit: Reuters

People stand in line outside ICICI bank. Credit: Reuters

People bore this drudgery with patience, hour after hour, day after day and week after week as the promise of dealing a death blow to black money, terror financing and corruption – all long standing ills plaguing the formal economy – appeared truly exciting. In the process, scores of citizens died on both sides of the cash counter – those eager to exchange and/or deposit the old notes as well as bankers who facilitated this exchange. It is too early to make a sound assessment about whether this was a price worth paying.

The time limit for depositing the demonetised notes ended on December 30, 2016. However the gazette notification through which the demonetisation decision was announced provided for a procedure to be laid down for depositing the demonetised notes that day:

“2(ix) any person who is unable to exchange or deposit the specified bank notes in their bank accounts on or before the 30th December, 2016, shall be given an opportunity to do so at specified offices of the Reserve Bank or such other facility until a later date as may be specified by it. [emphasis added]

The government seems to have created a major but clearly avoidable problem for itself while promulgating the Specified Bank Notes (Cessation of Liabilities) Ordinance (Ordinance) on December 30. While the primary purpose of the ordinance is to bring to an end all liabilities of the RBI and the government vis-a-vis the demonetised currency notes, it also makes possession of the same in quantities beyond what is permitted by the ordinance a crime. However, Section 4 of the ordinance provides a grace period for people who could not deposit their demonetised notes before December 30. The FAQs put up on the RBI’s website, unfortunately,  make it appear that this grace period is available only for people who were residing abroad. The relevant query and answer posted by RBI are reproduced below:

“3. What is the Specified Bank Notes (Cessation of Liabilities) Ordinance 2016?

The Specified Bank Notes (Cessation of Liabilities) Ordinance 2016 has been promulgated by the President of India (GoI Ordinance No. 10 of 2016 dated December 30, 2016) to provide for cessation of liabilities on the Specified Banknotes and for connected/incidental matters and comes into effect from December 31, 2016. In terms of this ordinance, with effect from December 31, 2016, the Specified Bank Notes shall cease to be the liabilities of the Reserve Bank of India and shall cease to have the guarantee of the Central Government.

A grace period has been provided during which the Specified Bank Notes can be deposited at five RBI Offices (Mumbai, New Delhi, Chennai, Kolkata, and Nagpur) in accordance with this ordinance by Indian citizens who make a declaration that they were outside India between November 9 and December 30, 2016, subject to conditions or any class of persons for reasons that may be specified by notification by the Central Government.

The Reserve Bank, if satisfied after making the necessary verification, that the reasons for failure to deposit the notes till December 30, 2016 are genuine, will credit the value of notes in the KYC (Know Your Customer) compliant bank account of the tenderer.

Holding the specified banknotes (SBNs) for the purpose of deposit by Resident Indian citizens who were abroad during November 9, 2016 to December 30, 2016 and Non Resident Indian citizens who were abroad during November 9, 2016 to December 30, 2016 is permissible during grace period. With effect from January 2, 2017 Resident Indian citizens who were abroad during November 9, 2016 to December 30, 2016 can avail this facility up to March 31, 2017 and Non Resident Indian citizens who were abroad during November 9, 2016 to December 30, 2016 can avail this facility up to June 30, 2017. While there is no monetary limit for exchange for the eligible Resident Indians, the limit for NRIs will be as per the relevant FEMA Regulations. In terms of Section 6 of the Ordinance, whoever knowingly or wilfully makes any false declaration shall be punishable with a fine which may extend to 50,000 INR or five times the amount of the face value of the SBNs tendered whichever is higher. Any person aggrieved by the refusal of the Reserve Bank to credit the value of notes as mentioned above may make a representation to the Central Board of the Reserve Bank within 14 days of the communication of such refusal to him/her.” [emphasis added]

People gather at the entry gate of a bank to exchange and deposit their old high denomination banknotes in Jammu, India November 15, 2016. Credit: Reuters/Mukesh Gupta

People gather at the entry gate of a bank to exchange and deposit their old high denomination banknotes in Jammu, India November 15, 2016. Credit: Reuters/Mukesh Gupta

What is wrong with the RBI’s FAQ when read with the ordinance?

Section 4(1) of the ordinance is crystal clear in its scope and application and is reproduced below:

“Notwithstanding anything contained in Section 3, the following persons holding specified bank notes on or before the 8th day of November, 2016 shall be entitled to tender within the grace period with such declarations or statements, at such offices of the Reserve Bank or in such other manner as may be specified by it, namely,:–

(i) a citizen of India who makes a declaration that he was outside India between the 9th November, 2016 to 30th December, 2016 subject to such conditions as may be specified, by notification by the Central Government; or

(ii) such class of persons and for such reasons as may be specified, by notification, by the Central Government.” [emphasis added]

However a second notification issued by the Department of Economic Affairs on 30th December permits the grace period for depositing the demonetised notes only for Indian citizens who had gone abroad or for Non Resident Indians (NRIs). The relevant para is reproduced below:

“E).—In exercise of the powers conferred by clause (b) of sub-section (1) of section 2, read with clause (i) of sub-section (1) of section 4, of the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 (Ordinance 10 of 2016), the Central Government hereby specifies, in respect of a citizen of India, referred to in clause (i) of sub-section (1) of section 4 of the said Ordinance,—

(a) who is a resident in India, the period ending on the 31st day of March, 2017; and

(b) who is not resident in India, the period ending on the 30th day of June, 2017, as the grace period for the purposes of the said Ordinance:” [emphasis added]

So this second notification is designed to cater to the interests of only the rich and the affluent – those who had the means to travel abroad or NRIs who live abroad. As explained above, Section 4(1) of the ordinance empowers the government to notify other classes of citizens who can also avail the grace period for exchanging the demonetised notes. The government has simply not issued any specification about this second category of citizens, till date. While the ordinance permits a way for citizens living in India who missed the December 30 deadline, to exchange their demonetised notes the government has simply not chosen to enforce this provision.

This amounts to reneging on the promise that the prime minister made on November 8 and the commitment made in the government’s gazette notification of that date. Whether this is an administrative delay or an administrative lapse or put bluntly, skulduggery, readers may decide for themselves .

Turning the hardship principle on its head

Given the noble objectives behind the demonetisation exercise, according to the official version dished out, the principle ought to have been maximum pain for those whom the exercise targeted, namely the black money hoarders, the corrupt and those financing terror, and minimum hardship for the law abiding. Instead, in actual experience, the exercise is turning out to be maximum pain for the honest, sincere and law abiding citizens who have only their hard earned savings to live on, as shown by the story of the daily-wager woman who protested outside the RBI office in Delhi.

Moreover, as the exchange facility is permitted only in the offices of the RBI at New Delhi, Mumbai, Chennai, Kolkata and Nagpur, even the rich and the affluent belonging to other towns will have to spend extra money to go to these places. It is interesting that the RBI’s remaining 26 offices covering other states have not been opened up. Maharashtra seems to be prized with two locations for this exchange facility.

Many lay persons think that that currency notes are government property. In this impression is completely wrong. The RBI may print currency notes under a statute but that is only coloured paper with a promise to honour it. The actual value of the currency notes arises from the transactions that people enter into every day. The value of each currency note resides in these transactions. The currency notes only facilitate the procedure for transfer of value from one person to another in a lawful manner. Those amongst readers who are students of history will remember that the first coins were minted in India not by the state or by kings, but by srenis and negamas (which in modern parlance may be called trading guilds or chambers of commerce). The state stepped in only as a regulator of the financial transactions in order to protect the meek from the greedy. It is high time citizens realise this truth and shed the mai-baap sarkar mentality which is anathema to a functional democracy.

In order to honour its commitments, the government must take immediate steps to:

1) notify criteria that will facilitate all honest and law-abiding citizens who missed the demonetisation bus to exchange their old currency notes; and

2) open up more centres across the country to facilitate this exchange up to 30 June, 2017 – as has been permitted for NRIs.

Anything less will be a violation of Article 14 of the constitution, where every person (and not just a citizen) is guaranteed equality before the law and equal treatment by the law. It will also be a violation of the promise – sab ka saath, sab ka vikas which the National Democratic Alliance made during the 2014 general elections.

Venkatesh Nayak is Programme Coordinator, Access to Information Programme, Commonwealth Human Rights Initiative, New Delhi.